Rising energy prices may cause manufacturers to flee Europe

Rising energy costs in Europe are closing businesses and threatening a bloc-wide recession. However, not everyone accepts this fate. Some companies are moving to cheaper locations: the United States

Steel giant ArcelorMittal He said Earlier this month, it would cut by half production at a steel plant in Germany and a unit at another plant, also in Germany. The company said it based its decision on the rise in gas prices.

Separately, ArcelorMittal recently warned that it expects its steel production for the fourth quarter of the year to be 1.5 million tons lower than it was in the fourth quarter of 2023, again pointing to excessive prices combined with declining demand.

Meanwhile, ArcelorMittal announced earlier this year that it had plans to expand an operation in Texas, describing the state as “an area that offers highly competitive energy and, ultimately, competitive hydrogen.” It’s just one of the European-based companies that’s starting to see the benefits of growing in the US, according to Report By David Operty of The Wall Street Journal.

Operti cites industry executives saying it wasn’t exactly a tough decision to make. Essentially, according to the report, it is a simple dilemma between bowing in the face of exorbitant energy bills and moving to a much cheaper energy environment, complete with new incentives for some industries.

Chemicals, batteries, green energy – these are all areas that are set to benefit greatly from the inflation-reduction law that was passed last month. No wonder, then, that companies active in these areas consider it a good idea to either move or expand in the United States.

Meanwhile, in Europe, more and more companies are switching to survival mode. This is because, for many of them, it’s time to renew their electricity supply contracts with utilities. Thanks to power inflation, these are set to be much higher than this year’s contracts, with first-year prices hitting more than $1,000 in France and Germany.

Liz Alderman in The New York Times Wrote In a recent story, energy-intensive industries such as manufacturing and fertilizer production were particularly vulnerable due to their high energy needs. She cited the case of Arc International in the glass industry, which is also shutting down production units in the face of rising energy costs.

The European Commission has a promise To help by capping revenues from electricity generators that use a major source of energy other than gas, and by taxing “excessive” profits for oil, gas and coal companies. According to the European Commission, raising cash under the current conditions was a mistake, although the profits in themselves were a good thing.

The plans are set to raise about 140 billion euros – roughly the same amount in dollars – to be distributed to struggling families and businesses. Critics, however, note That this will not be enough to save companies from collapse. The European Aluminium, the industry association, said energy costs could lead to the collapse of Europe’s aluminum industry.

“I think we’re going through the winters,” the CEO of thermal product maker RHI Magnesita told the Wall Street Journal. However, if gas does not become cheaper, as Stefan Burgas said, “companies will start looking elsewhere.”

Companies packing and leaving for cheaper jurisdictions appears to be another unintended consequence of the policies favored by European governments, particularly in the energy department. It also represents an additional risk to the bloc’s survival as a competitive industrial formation in the future. This danger presents another dilemma that governments and the administration in Brussels must solve in a short time.

By Irina Slough for Oilprice.com

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